Protecting your Savings

Since the Cyprus banking hit the headlines in March, we have been getting many enquiries from people concerned about the safety of their bank deposits.

Under an EU Directive, all European countries have a guarantee scheme to refund bank depositors up to €100,000 should a bank fail. In Spain we have the Fondo de Garantía de Depósitos. If you have savings above €100,000 the excess may be lost, though you may receive additional funds following any distribution of assets as part of the insolvency process.

In Cyprus the situation is a little different. The initial plan to tax even accounts under €100,000 was thankfully rejected, and European leaders have since emphasised that savings under €100,000 should always be protected. However, deposits over €100,000 in the country’s two largest banks will suffer heavy losses, quite possibly 50% or even more!

Those who lost money in the Icelandic banking collapse in 2008 learned this lesson the hard way, but for many other people the threat had receded. You know it can happen, but do not really expect it to. The Cyprus disaster is a stark reminder that it can.

So what can you do to protect your savings?

Remember that cash is not a ‘risk free’ asset. Besides the possibility of institutional failure (what has effectively happened in Cyprus), interest rates have been at historic lows for years and inflation has been eroding the value of bank deposits. The UK action group, Save our Savers, calculated that since the Sterling base rate was cut to 0.5%, UK savers have lost £220 billion through reduced interest and the effects of inflation. This, they say, is an extraordinary haircut of 20% of the entire value of cash savings.

I would advise against keeping more than €100,000 in one banking group. Note that the compensation limit in the Channel Islands and Isle of Man is lower at £50,000, and they have a cap on the amount they will pay out.

It has always been very important to diversify your investable capital over different assets. This reduces risk. You need to think of the cash as an investment asset in the same way as shares, bonds and property, and have suitable diversification to spread the risk.

Finally, when you deposit money in the bank it forms part of the bank’s balance sheet. Seek advice on alternative arrangements where you can “ring-fence” your assets from the institution holding them, so that if it fails, your money is protected.

As always, your investment decisions, whether to invest in shares, cash, or anything else, should be based on your personal objectives, circumstances, time horizon and risk tolerance. Speak to Blevins Franks, which has decades of experience advising British expatriates, to get tailored advice on the best asset allocation for you and as well as on asset protection.

Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.

About abcMallorca

Launched in 2004, abcMallorca is the leading lifestyle magazine for the Spanish Balearic island of Mallorca, and is published in English, Spanish and German. Each stylishly designed edition has a particular theme, and contains interesting articles, fabulous photo-shoots and a wealth of information designed to help make living or spending time on this beautiful island a luxury lifestyle experience.

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abcmallorca

abcMallorca is the leading lifestyle magazine for the Spanish Balearic island of Mallorca, and is published in English, Spanish and German. Interesting articles, fabulous photo-shoots and a wealth of information designed to help make living or spending time on this beautiful island a luxury lifestyle experience.